New York Federal Criminal Practice Blog

Recently in the Trial - Evidence category:


The NYSACDL has published its latest edition of Atticus, focusing on the organization’s often unsung and unknown efforts to influence the legislative process.  It includes my article addressing three recent Second Circuit decisions, including Capers (setting up some serious hurdles to the admission of statements obtained through a “two-step”– question first, Mirandize later – interrogation procedure), Cossey (“a sentencing decision that relies on factual findings that were unsupported in the record . . . seriously affects the fairness, integrity, and public reputation of judicial proceedings”), and Brown (“when a claim of ineffective assistance of counsel is first raised in the district court prior to the judgment of conviction, the district court may, and at times should, consider the claim at that point in the proceeding.”) 
Guest blogger Valerie A. Gotlib of Sher LLP writes:

Buried in the impressive reversal of the fraud conviction of Mark Kaiser, an executive at U.S. Food Services (“USF”) in United States v. Kaiser, 609 F.3d 556 (2d. Cir. 2010), issued last summer, is a quotable acknowledgement that insider trading is a very different and unique kind of securities fraud, deserving of a heightened level of scienter.  As the Court notes, “[u]nlike securities fraud, insider trading does not necessarily involve deception, and it is easy to imagine an insider trader who receives a tip and is unaware that his conduct was illegal and therefore wrongful.  The same cannot be said of one who deliberately misleads investors about a security.”  

In addition to that notable dictum, the court held that the district court committed two independent errors.  First, the district court instructed the jury with respect to conscious avoidance without informing the jury that it could find that Kaiser had knowledge of the fraud if he was aware of a “high probability” of its existence unless he “actually believed” that it did not exist.  Second, the district court admitted double hearsay when it allowed a USF employee, Tim Lee, to testify that USF’s CEO had told Lee that USF’s general counsel wanted to go to the SEC to expose Kaiser’s improper accounting entries.  The Second Circuit found that both errors were grounds for reversal.


As one of the largest food distributors in the United States, USF was in the business of purchasing food products from manufacturers and selling them to restaurants.  Between 1994 and 2001, Kaiser managed the company’s dealings with its food vendors.  An important source of revenue for USF was derived from “promotional allowances,” or “PAs,” a type of rebate paid to USF by vendors upon satisfaction of certain purchasing targets.  Part of Mr. Kaiser’s job included negotiating PAs with vendors.  Early in 2001, Mr. Kaiser was named Chief Marketing Officer of USF, but he continued to be involved in negotiating PAs.

The indictment alleged that Mr. Kaiser fraudulently inflated USF’s PA income for the years 2001 and 2002, hid the inflated numbers from outside auditors, and made various misrepresentations to the auditors concerning the PA agreements with vendors.  The scheme included recording prepayments from vendors as income and, thereby, artificially inflating the amount of revenue earned from PA payments to ensure that USF met its earnings and other budgetary targets.  USF’s executives, including Mr. Kaiser, received bonuses only if USF met these targets.  

At trial, the government presented a case based primarily on the testimony of three alleged coconspirators, including Tim Lee, who cooperated with the government and testified pursuant to plea agreements.  Kaiser argued in his defense that he had been setup by the three USF employees and had been unaware of the fraud.  Kaiser was convicted of securities fraud, making false filings with the SEC, conspiracy to commit those crimes, and conspiracy to falsify books and records.  Kaiser appealed.

Conscious Avoidance Jury Instruction

On appeal, Kaiser argued that the district court’s jury instructions with respect to conscious avoidance omitted two necessary elements: “that knowledge of the existence of a particular fact is established 1) if a person is aware of a high probability of its existence, 2) unless he actually believes that it does not exist.” United States v. Schultz, 333 F.3d 393, 413 (2d Cir. 2003) (internal quotations marks omitted) (emphasis added). The court reviewed Kaiser’s conscious avoidance argument for plain error because he had failed to raise an objection to the instruction at trial.

The court held (and the government conceded) that the district court erred in instructing the jury on conscious avoidance because it “did not contain either the ‘high probability’ or the ‘actual belief’ language,” which the court had “long held is essential for an accurate conscious avoidance instruction.”  609 F.3d at 566.  The government argued nonetheless that there was no prejudice from the instruction in light of the overwhelming evidence that Kaiser had actual knowledge of the fraudulent scheme.  The court disagreed and found that there was a risk that the jury convicted Kaiser based on its conclusion that he was merely negligent and could have convicted him even if it found that Kaiser actually believed the PA numbers were correct.  Because there was ample evidence for the jury to question the credibility of the government’s witnesses, the court concluded that there was a reasonable probability that the jury convicted Kaiser based on a conscious avoidance theory and would not have done so but for the instructional error. The court further held that the error seriously affected the fairness, integrity or public reputation of judicial proceedings and thus met all of the requisite elements for a finding of plain error.
Admission of Hearsay Statement of USF’s General Counsel

Kaiser also argued on appeal that the district court erred in admitting certain testimony.  Lee testified that the CEO of USF told him that USF’s general counsel had discovered that Kaiser improperly had booked $18.5 million in prepayments as income and that the general counsel wanted to report this to the SEC.  Kaiser objected at trial on the ground that it was double hearsay.  The government countered that the testimony was admissible as a statement of an unindicted coconspirator under FRE 801(d)(2)(E) and that the statement was in furtherance of the conspiracy.  The district court held that the statement was admissible for the limited purpose of explaining why Lee and the CEO engaged in certain subsequent acts. 

On appeal, the Court held that the statement constituted hearsay and did not fall into any of the hearsay exceptions.  The court observed that even if the government could have overcome the hearsay objection, the statement would have been inadmissible under FRE 403 because its prejudicial effect outweighed its probative value.  Indeed, because of the highly prejudicial nature of the testimony and the risk that the jury could have given it more credence since it came from USF’s general counsel, who was not a co-conspirator, the court concluded that the error was not harmless.

Willfulness Instruction

The Court, however, rejected the defense challenge to the district court’s instruction on willfulness.  Acknowledging that insider trading is different (as noted earlier), the Court concluded that securities fraud charges like those at issue in Kaiser required merely that the defendant “had an awareness of the general wrongfulness of his conduct” and “do not require a showing that a defendant had awareness of the general unlawfulness of his conduct.”  Here, the jury was charged that they had to find that Kaiser knew the statements were “false and fraudulent” and that he made those statements “with intent to create a deception,” and the government had to prove “the contrary of the idea of mistake or good faith.”  If the jury found that Kaiser possessed such an intent, as it did, “it follows necessarily that it also concluded that there was “a realization on the defendant’s part that he was doing a wrongful act.”

Alexandra Shapiro (Macht, Shapiro, Arato & Isseries, LLP) and Richard Morvillo, Andrew Frey, Peter White, Charles Rothfeld, Daniel Brown and Michael Passaportis (Mayer Brown LLP) for defendant; AUSAs Daniel Chung, Daniel Braun. 
The NYSACDL has published its fall issue of Atticus.  Judge Bellacosa has contributed an eloquent piece in support of open-file discovery, relevant both to state and federal prosecutorial practices, highlighting the success of a project in the Brooklyn DA's office, and advocating a state-wide statutory authorization, with uniform standards of application and accountability.  Mark Hosken of the WDNY Federal Defender has contributed a notable piece on the Ex Post Facto Clause in a post-Booker world, and I have contributed a piece on some recent decisions from the Second Circuit, including the Rajaratnam and Amanuel cases on wiretaps, the Martinez case on Batson, and Ortiz on sentencing. 
The NYSACDL has published the second edition of its excellent revitalized Atticus.  It's well worth checking out - Donna Newman gives a fascinating fly-on-the-wall account of the Russian spy case, and Donald Thompson has a moving essay on a wrongful conviction.  I have also contributed a piece highlighting some recent Second Circuit cases, including three cases not previously mentioned in this blog:  United States v. Julius (suppression); United States v. Sabhnani (liability for omissions, and also interesting on the issue of venue transfer and psychological evaluations of government witnesses); and United States v. Oluwanisola (proffer statements). 
United States v. Torres, 2010 WL 1790220 (2d Cir .May 5, 2010), is one of those rare cases in which the Court has reversed the defendant’s drug conspiracy conviction on the grounds of insufficient evidence.  While there was evidence that Torres knew or should have suspected that he was participating in something illicit – “especially the facts that Torres undertook to receive heavy and bulky packages on the street, which were addressed to him at a building with which he had no apparent connection” – the record was lacking “any evidence that Torres knew the Packages contained narcotics.”

There was, for example, no cooperating witness testifying at trial. There was no evidence of any drug records implicating him. The cocaine was well concealed and not visible. There was no proof of any narcotics-related conversation to which Torres was a party . . . [T]he government presented no evidence as to the nature of Torres's associations with the persons who shipped the cocaine or with the persons who expected to distribute it. There was no evidence of a sizeable payment to Torres that might reflect an expectation related to the million-dollar street value of the cocaine . . . Nor was there evidence that Torres was placed in a position of trust . . . Torres was never in a position to be alone with the Packages until the driver of the minivan fled the mall upon spotting the police surveillance. This record does not lend itself to an inference that Torres was so trusted that he must have known that he was dealing with narcotics.

Lawyers:  Edward Zas (Federal Defenders, Inc.); AUSAs Nicholas L. McQuaid, Michael D. Maimin
Guest contributor Marshall Mintz writes:

Fraud based on the “deprivation of honest services” is a controversial charge likely to elicit some notable rulings from the Supreme Court this term, as noted here.  In particular, the cases of Jeffrey Skilling and Conrad Black may produce decisions that reign in the reach of honest services fraud in the context of private businesses, two varieties of which have been identified by the Second Circuit in United States v. Rybicki: cases involving bribes or kickbacks, and cases involving self-dealing.  Bribery/kickback cases need no introduction.  Self-dealing cases, on the other hand, usually involve the defendant causing his employer to do business with a corporation or enterprise in which the defendant has a secret, undisclosed interest.  In Rybicki, the Second Circuit adds that "[i]n the self-dealing context, though not in the bribery context, the defendant's behavior must [.] cause, or at least be capable of causing, some detriment – perhaps some economic or pecuniary detriment – to the employer.” 

This distinction is at issue in United States v. Demizo, 2009 WL 2163099 (EDNY July 20, 2009), where the defendant was convicted after trial of securities fraud and making false statements.  Because EDNY Judge Gleeson concluded, however, that there was no factual predicate to treat the case as a self-dealing one, he declined to defendant’s requested jury charge on the issue of detriment.  The case also includes an interesting discussion on the issue of permitting the defendant to introduce at trial a statement the government made in a brief under the "admission of a party opponent” rule.  

Refusal to Charge:

Relying on the Second Circuit’s decision in United States v. Rybicki, 354 F.3d 124 (2d Cir. 2003), the court rejected the argument that the jury should have been instructed that the fraud involved self-dealing as opposed to kickbacks, and the government was therefore required to prove a possible detriment to the employers.  

Assuming the validity of the legal argument, the court deemed any such instruction inappropriate because the defense “failed to identify any evidence in the record that could permit the jury to find that this was a self-dealing case.”  As the Second Circuit has suggested, self-dealing involves a situation where the defendant causes the employer to do business with a corporation or other enterprise in which the defendant has a “secret interest.”  That term has not been defined, but the relevant cases all involve defendants who had undisclosed ownership interests in those entities and Demizio “did not argue that the record showed he had such a cognizable interest in the firms to which he steered his employer’s business.”  

The court also rejected the defense’s argument that the case involved self-dealing because the government alleged a conflict of interest because, “every fraud case, including the kickback scheme at issue in Rybicki, involve a conflict of interest in that every individual has a personal interest in pocketing a kickback while every employer has an interest in hiring people who eschew such conduct.”  

Refusal to Admit a Statement from a Government Brief

The defense also argued that it should have been permitted to introduce into evidence a government pre-trial brief submitted in opposition to a request for a bill of particulars, reasoning that statements made by an attorney concerning a matter within his employment may be admissible against the represented party.  

The court explained that while the Second Circuit has previously considered the admissibility of statements made in a bill of particulars and opening statements made by defense counsel at a previous trial and found that, while not inadmissible per se, policy concerns weigh against allowing such statements to be admitted as admissions by a party-opponent.  Against that backdrop, Judge Gleeson reasoned that because the brief was a legal memoranda and not a formal pleading, it was merely an assertion about the charges in the indictment – which is a charge of the grand jury – and could not properly be deemed a statement by the government .
Finally, rejecting the claim that the brief was evidence that the government had changed its theory during the trial, the court found the assertion irrelevant “to any factual issue submitted to the jury” and, in any event, the probative value was substantially outweighed by the risk of confusion.   

Attorneys: David Spears, Charlita Mays (Spears & Imes LLP) (defendant); AUSA’s Winston Chan, Kelly T. Currie, Winston Paes

Evidence - even suggestions - of uncharged conduct at trial can be devastating, especially in a circumstantial case, as the Second Circuit acknowledged recently in two cases.  In one, United States v. Farmer, 2009 WL 3200690 (2d Cir. October 8, 2009), the Court vacated a defendant’s attempted murder conviction where gratuitous references to his nickname “murder” “short-circuited the jury’s fact-finding” regarding a plausible defense.  In the other, United States v. Williams, 2009 WL 3429594 (2d Cir. October 27, 2009), the Court vacated a conviction for gun possession where the trial judge had admitted evidence that the defendant had access to an apartment that was discovered a day after his arrest to contain, among other savory items, loaded firearms, ammunition, drugs, and bullet-proof vests.  Rejecting the government’s claim that this was essential “background evidence” (it didn’t fill any “gaps in the government’s case” or add “missing pieces of the story”), the Court also rejected the argument that the evidence was relevant under Fed.R.Evid. 404(b) to prove the defendant’s “opportunity and motive” to possess a gun.  Even if this was the case - and the government didn’t use it for this purpose at trial - much of the evidence “went far beyond what was necessary for this purpose.” In lines that could be applied to many motions by the government to admit the defendant’s other alleged bad acts, the Court explained:

Its admission ignored a “common sense precaution which should clearly be taken ... to limit the prosecutor’s presentation to such facts ... as are reasonably necessary to prove the point for which the evidence is admitted, and to exclude unsavory details which go beyond what is necessary to make the point.”  David W. Louisell & Christopher B. Mueller, Federal Evidence § 140, at 209 (rev. ed.1985); see also United States v. Bradwell, 388 F.2d 619, 622 (2d Cir.1968) (discussing the undue prejudice that can result when the “minute peg of relevancy [is] entirely obscured by the dirty linen hung upon it” (citation omitted)).

Lawyers (Farmer): Jeremy Epstein, Seth Kean, Grace Lee, Rebecca Boon (Shearman & Sterling LLP) (defendant); AUSAs Ilene Jaroslaw, Peter Norling
Lawyers (Williams): Donald Yanella (defendant); AUSAs Justin Lerer, Jo Ann Navickas

See Archives for all posts since September 2007.